Money is the Root of a Lot of Good
Our minds like to set up quick and fast rules. These rules help us quickly evaluate situations and make decisions about how to proceed or if to proceed. All of our daily decisions are like math equations. Our minds like to preprogram acceptable values for as many variables as possible in advance. You know, fire = hot, ice = cold, wealth = greed, blue collar = good, businesses executive = exploitation.
Most of us have been programed from birth to be skeptical, maybe even resentful of those with wealth. Much of the media and political powers portray the wealthy as lucky or worse. President Obama recently described our prosperous fellow citizens as people who, “Won society’s lottery.”
And masses of people are losing their minds about the so called “wealth gap.” There is a wealth gap in our country and maybe it needs to be addressed but I’m not interested in the politics of the issue. But the punitive and spiteful tone of the debate is not only hurting our country; it’s also crippling minds.
The wealth gap is a great subject to help illustrate how our preconceptions about wealth are crippling many of us and impeding our paths towards our financial goals. The truth is that the wealthy (mostly) do not gain their wealth by taking from others. Much of their wealth is created by adding to the pie. Here’s a different way to look at the wealth gap:
My Wealth Gap Analogy: IMPORTANT
Imagine that there is a 100 lot subdivision. All the lots are vacant and all of them are worth $10,000 each. They are all owned by separate individuals. So at its inception this subdivision as a hole is worth $1,000,000. For simplicity let’s say that 90 of those owners park mobile homes on their lots, 9 of them build 2,000 square foot homes and one lady builds a business and works her guts out to make it successful.
The 90 lots with mobile homes had no increase in value. The lots with permanent homes are now worth $250,000. And the business lot is worth some derivative of the net sales she captures.
The business: Let’s say the business is a small retail store and she busts her butt keeping her establishment clean, her staff well trained, courteous and helpful, she stays on top of inventory and accounting and she works hard to negotiate with suppliers, keep her business efficient and provide the best price and service to her customers. After 10 years she’s making a net income of $150,000. Now we might find the value of this company by applying a capitalization rate of 8%. With a cap rate of 8 that business would be worth about $1,875,000.
After 10 years the subdivision might be valued like this:
90 lots worth $10,000 each = $900,000
9 lots with homes worth $250,000 each = $2,225,000
1 lot with business worth $1,875,000 = $1,875,000
Total subdivision value= $5,025,000
One could look at this and say that the top 1% owns 37.3% of all the wealth in the subdivision and the top 10% owns 81.6% of all the wealth. But did the top 10% take from the other 90%? The answer is clearly, No.
In fact the business owner probably hired a handful of her neighbors and provided them with income and benefits. Also, the fact that there are nice valuable homes in the area probably actually increased the value of the mobile home lots. Potential home buyers will look at those lots and consider buying them to build their own nice homes based on the value of the neighbors. The lots around the business may be rezoned as commercial lots based on the value, appearance and success of the business and they might go way up in value. That road may be renamed Main Street.
Walmart is a prime example of a company drastically increasing real estate values. Walmart can buy a near worthless field near an interstate onramp and build a store. Overnight all the fields around Walmart are suddenly worth a million dollars.
This subdivision example could be applied to our nation as one huge subdivision. Apple is the highest valued company in our country. Ten years ago no one believed that anyone would pay $600 for a phone but now the smart phone market makes up a huge percentage of all cell phone sales and they add to our nation’s productivity. Steve Jobs was worth about $31.6 Billion at his death. But, Apple is worth over $700 billion. So Steve Jobs and his friends created a business that added $700 billion to our nation’s value but he only kept less than 5% of it, the rest enriched others. That doesn’t include the salaries that are paid to its employees or the many other businesses that exist or profit by selling Apple products or supplying Apple.
If you think that all wealthy people are simply lucky, or that they cheated, stole or exploited their way to wealth then how can you believe that you ever have a chance to gain wealth yourself? You see this in the number of people who play lotteries. Talk about exploitation.
Most wealth is created through hard work. That’s not to say that there is not a fair share of crooks out there but most wealthy people I know are extremely hard working, inspired and honest people. I’m amazed by some of the wealthy people I personally know. I wonder why they’re still working. They no longer need the money. But, they love what they do. In my opinion most are driven by love and passion for what they do and the wealthy in our country are extremely charitable.
Most wealth is created first in the mind, pursued with confidence and determination and realized through hard work. If you’re predisposed to view wealth as ill-gotten fruits or as dumb luck then there is no way you can have the confidence and determination on which to base your hard work. You will run into hard luck and obstacles. These obstacles will become confirmation to your mindset that you are not lucky and therefore will never be rich.
Every successful business person goes through extremely hard times and is knocked down early and often. The successful people brush themselves off and get back on track. Other people view the obstacle as confirmation that life is not fair and they’re not lucky enough to succeed.
The vast majority of successful businesses in this country are based on hard work and determination. You don’t need a novel idea or a new invention. Most of our country’s wealthy people run very mundane small business like dry cleaners. They out work their competition and they consistently provide for their customers.
Granted, this is a highly simplified example. I’m not telling you that this is the rule on which to judge every wealthy person or business or that the wealth gap does not need any attention. This is a subject where we should not have hard set mental rules.
I don’t care about the politics of this issue and I’m not trying to persuade anyone to write their congressman and change their votes. I don’t care about the politics. I only care about your mental readiness to pursue true wealth.
I only say that your mind is the most powerful tool to wealth building. You need to address your preconceptions and make sure that they’re not impeding your progress. Some people may cheat and steal their way to wealth. Some people might be lucky. The world is not fair but know this, the world favors consistent hard work and bold action. Success favors perseverance over providence.
In this great country absolutely anyone can get rich. Faith in that belief is rule number one for those seeking wealth in real estate or any business. If you don’t have this belief then stop everything and reconsider your path. Study the stories of famous entrepreneurs and seek out wealthy people, learn their stories. If you cannot embrace this principle then you need to reconsider you efforts to become rich. Without this foundation you are crippled and you will likely only find grief and wasted efforts.
Money may be the root of all evil but it’s also proof of a job well done. It’s confirmation of a good idea. It’s a reward for a good product or service.